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Income Tax Appellate Tribunal, DELHI BENCH “D”: NEW DELHI
Before: SHRI G.S. PANNU, HON’BLE & MS. ASTHA CHANDRA
INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “D”: NEW DELHI BEFORE SHRI G.S. PANNU, HON’BLE PRESIDENT AND MS. ASTHA CHANDRA, JUDICIAL MEMBER ITA No. 1085/Del/2022 Asstt. Year: 2017-18
Relx Inc. Vs. ITO Ward, 14th Floor, Tower B, International Building No. 10, DLF, Taxation-3(1)(2) Cyber City, Gurgaon, Delhi. Haryana-122 002 PAN AAECR9091H (Appellant) (Respondent)
Assessee by: Shri Ravi Sharma, Advocate Shri Rishabh Malhotra, Advocate Department by: Shri Vizay Basanta, CIT- DR Date of Hearing: 01.05.2023 Date of 24.07.2023 pronouncement:
O R D E R PER ASTHA CHANDRA, JM
The appeal filed by the assessee is directed against the order dated 23.03.2022 passed by the Ld. Commissioner of Income Tax (IT) Delhi – 3 (“CIT”) under section 263 of the Income Tax Act, 1961 (the “Act”) pertaining to Assessment Year (“AY”) 2017-18.
The assessee has taken the following grounds:-
“Ground No. 1 On the facts and in the circumstances of the ease and in law, the Appellant submits that the Learned Commissioner of Income Tax (‘Ld. CIT’) erred in revising the assessment order passed by the Income tax Officer, Ward
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International Tax 3(1)(2), Delhi (‘Ld. AO’) under Section 263 of the Income Tax Act, 1961 (‘Act’).
The Appellant prays that the order passed under section 263 is liable to be quashed.
Ground No. 2 On the facts and in the circumstances of the case and in law, the Ld. CIT erred in exercising his jurisdiction for initiating proceedings under section 263 of the Act, without appreciating that the Ld. AO had passed the assessment order after making due enquiries and verification of records and hence the said order is not erroneous and/or prejudicial to the interest of the revenue.
The Appellant prays that the order passed under section 263 is not in consonance with the law laid down by the Act and hence liable to be quashed.
Ground No. 3 On the facts and in the circumstances of the case and in law, the Ld. CIT erred in initiating proceedings under section 263 of the Act, without appreciating that the Ld. AO was correct in accepting the claim made by the Appellant in the return of income.
The Appellant prays that the order passed under section 263 is liable to be quashed.
Ground No. 4 Without prejudice to the grounds above, the Ld. CIT erred in directing the Ld. AO to make an addition of the subscription receipts of INR 5,56,79,800 received from its Indian customers by treating it as Fees for Technical Services (‘FTS’) as per the provisions of section 9(i)(vii) of the Income-tax Act, 1961 (the Act) without appreciating that there are no services at all.
Ground No. 5 Without prejudice to the grounds above, the Ld. CIT erred in directing the Ld. AO to make an addition of the subscription receipts of INR 5,56,79,800 received from its Indian customers by treating it as Fees for Included Services (‘FIS’) Article 12 of the tax treaty between India and USA (‘India-USA DTAA’) without appreciating that even if services are considered to be rendered, the services do not make available technical knowledge to the recipient and hence are not taxable in India.”
Briefly stated, the facts are that the assessee is a Non-Resident Company. It is a tax resident of USA. It filed its return for AY 2017-18 on
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30.11.2017 declaring total income of Rs. 5,56,79,800/-. The case was selected for scrutiny under CASS. During assessment proceedings statutory notice under section 143(2) of the Act was issued on 16.08.2018 which was served upon the assessee. Subsequently, notices under section 142(1) along with questionnaire were issued on 03.01.2019, 30.09.2019 and 24.11.2019 which were duly served upon the assessee. In response thereto, the assessee filed details on e-filing portal. The Ld. Assessing Officer (“AO”) completed the assessment under section 143(3) of the Act on 20.12.2019 on total income of Rs. 5,56,79,800/-.
3.1 In exercise of powers vested in him under section 263 of the Act, the Ld. CIT cancelled the said assessment order on 23.03.2022 holding that the same is erroneous and prejudicial to the interest of Revenue as the assessee had received a sum of Rs. 5,56,79,800/- from customers in India on which though tax was deducted @ 10% at the time of remittances but the same was not offered to tax in India. He also observed that during the course of assessment proceedings no details were called for with regard to ascertaining the taxability of these receipts.
The Ld. CIT, therefore, issued Show Cause Notice (“SCN”) mentioning 3.2 therein, inter alia that during the course of assessment proceedings for AY 2018-19 and 2019-20 the Ld. AO through extensive enquiry/verification has ascertained that the receipts are taxable in the hands of the assessee as Fee for Technical Services (“FTS”)/Fee for Included Services (“FIS”) under section 9(1)(vii) of the Act and Article 12 of India-USA DTAA. Since the facts for AY 2017-18 are identical, why action under section 263 of the Act be not taken.
3.3 The assessee responded to the above SCN. It contended that Section 263 cannot be invoked for a mere change of opinion; that the receipts in respect of services would not qualify as FTS/FIS under Article 12(4) of India- USA DTAA as these are not technical services; that the services are standard facility only; thus the services do not satisfy the criterion of the ‘make
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available’ condition laid down under Article 12(4) of India-USA DTAA. It was also submitted that the DTAA provisions being more beneficial to it, the assessee adopted the source rule under India-USA DTAA to decide the taxability of FTS.
3.4 The contentions / submissions of the assessee were not acceptable to the Ld. CIT as according to him the assessment order was passed without conducting enquiry relevant to ascertain the facts and the taxability of the income. Therefore, the assessment order is erroneous being prejudicial to the interest of Revenue.
3.5 The Ld. CIT examined the merits of the case on the aspect of taxability of service income of the assessee in paras 7, 8, 9 and 10 of his impugned order and in para 11 arrived at the conclusion that the income of the assessee is taxable as FTS/FIS under the provisions of the Act r.w. Article 12(4) of the India-USA DTAA. Accordingly, the Ld. CIT directed the Ld. AO to revise the assessment order.
Aggrieved, the assessee came in appeal before the Tribunal and all the grounds relate thereto.
The Ld. AR submitted that the assessee is a tax resident of USA and is engaged in the business of maintaining an on-line database (Lexix Nexix) pertaining to legal and law related information which included articles, copy of judgments, filed patent applications before patent registry and other legal information. The assessee earns subscription fees from customers worldwide including India, by providing access to the on-line database. It does not have a fixed place of business or a Permanent Establishment (“PE”) in India. Accordingly, the assessee claimed that the subscription fee received for providing access to the database was in the nature of business income which, in the absence of a PE in India was not taxable in India as per the provisions of India-USA DTAA.
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5.1 The Ld. AR further submitted that during the course of assessment proceedings, relying on the decision of the Mumbai Bench of the Tribunal in the case of sister entity, namely Elsevier Information Systems GmbH which employed the same business model and was in the same business, the receipts in the case of the assessee ought to be classified as business receipts not taxable in India. The Ld. AO accepted the submissions of the assessee.
5.2 The Ld. AR strongly refuted the observations of the Ld. CIT made by him in his discussion on merits of the case. According to Ld. AR in the case of other Group Entities on similar issues of access / subscription to website, the Mumbai Bench of the Tribunal as also the Hon’ble Authority for Advance Rulings held that subscription fee would be in the nature of business income only. The Ld. AR pointed out that the facts in the assessee’s case are paramateria to those in Elsevier Information Systems GmbH vs. DCIT (IT) in ITA No. 1683/Mum/2015 and ITA No. 7126/Mum/2019 and therefore decision in that case squarely apply to the assessee. In the decision (supra) the applicable treaty was Indo-German Treaty wherein the provisions of FTS are similar to section 9(1)(vii) of the Act. In the assessee’s case, however the applicable treaty is Indo-US Tax Treaty wherein the benefit of ‘make available’ clause is there and at no point of time it can be alleged that any kind of know-how or knowledge has been made available to the other party.
5.3 Lastly, the Ld. AR brought to our notice that the assessment orders for subsequent AY(s) referred to by the Ld. CIT have been reversed by the Tribunal holding that no portion of the subscription fees received by the assessee for the access granted to its database can be taxed as FTS. Copy of ITAT order in ITA No. 1877/Del/2022 for AY 2018-19 and in ITA No. 1876/Del/2022 for AY 2019-20 rendered on 05.04.2023 was submitted which has been placed on record.
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The Ld. DR supported the order of the Ld. CIT. He submitted that the assessee is not just providing a routine or standard facility. The on-line services provided by the assessee themselves make available highly specialised and technical content in the form of solutions, knowledge, experience, skill, know-how and processes. Therefore, the services rendered by the assessee are covered under Article 12(4)(b) of India USA DTAA as well as Explanation 2 under section 9(1)(vii) of the Act.
We have carefully considered the rival submissions of the parties and perused the records. It is not in dispute that the Ld. CIT has invoked Explanation (2) clause (a) and (b) brought on the statute Book by the Finance Act, 2015 w.e.f. 01.06.2015 for the purpose of assumption of jurisdiction under section 263(1) of the Act which deem the assessment order passed without making inquiries or verification which should have been made or relief is allowed without enquiring into the claim as erroneous in so far as it is prejudicial to the interest of Revenue. It is also manifest from the order of the Ld. CIT that he thoroughly examined the merits of the assessee’s case on the issue of taxability of service income earned by the assessee and after lengthy discussion came to the conclusion that the impugned income of the assesee is taxable as FTS/FIS under the provisions of the Act r.w. Article 12(4) of India-USA DTAA. As a sequel, he cancelled the assessment order and directed the Ld. AO to tax the impugned receipt @ 10% on gross basis as per section 115A of the Act.
Keeping in view the fact that the Tribunal in subsequent two AY(s) 2018-19 and 2019-20 in assessee’s own case decided this issue on merits in favour of the assessee, in our humble opinion, the very basis of assumption of jurisdiction by the Ld. CIT under section 263 of the Act in AY 2017-18 presently under consideration does not survive. In its decision in ITA No. 1877/Del/2022 and ITA No. 1876/Del/2022 rendered on 05.04.2023 for AY 2018-19 and AY 2019-20 respectively, the Tribunal in regular appeals on merit held as under:
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“10. We have heard the parties and perused the material available on record and gave our thoughtful consideration.
It is found that the assessee earns income in the nature of subscription fees from Indian subscriber for providing subscription to data base Lexis Nexis wherein host of information started on subject/topic relating to legal and tax matters. The person interested to purchase the electronic version of the books/journals/articles can be purchased it on line by paying the price of the book and in so far as the frequent customers of the books/journals /articles available on Lexis Nexis can opt to subscribe data base for certain period which allows the customers to access the e-books/e-journals/e- articles on the online data base. In both the cases, the content received by the user remains the same that is books, journal and articles in an electronic format.
The assessee is a part of Elsevier Group and in case of other group entities on the similar issue of access/subscription to web-site, the ITAT Tribunal of Mumbai Bench in the case of Elsevier Information Systems GmbH Vs. Dy. Commissioner of Income Tax (IT) in ITA No. 1683/Mum/2015, dealing with the similar issue for the Assessment Year 2011-12 held as under:-
“15. A customer/subscriber can access the data stored in the database by paying subscription. The Department held the subscription paid to Dun & Brad Street Espana, S.A., for accessing the data to be in the nature of royalty. The Authority for Advance Ruling after dealing with the issue ultimately concluded that the subscription received by Dun & Brad Street Espana, S.A., for allowing access to the database is Elsevier Information Systems GmbH not in the nature of royalty/fees for technical services. Following the aforesaid decision, the Tribunal, Ahmedabad Bench, in ITO v/s Cedilla Healthcare Ltd. [2017] 77 taxmann.com 309, while considering the nature of subscription paid to a U.S. based company viz. Chemical Abstract Services, which is in the same line of business and is stated to be the competitor of the assessee, held that the subscription paid for online access to the database system "scifinder" is not in the nature of royalty. The observations of the Tribunal while deciding the issue in favour of the assessee are as under:-
"17. We find that as the treaty provision unambiguously requires, it is only when the use is of the copyright that the taxability can be triggered in the source country. In the present case, the payment is for the use of copyrighted material rather than for the use of copyright. The distinction between the copyright and copyrighted article has been very well pointed out by the decisions of Hon'ble Delhi High Court in the case of DIT v. Nokia Networks OY [2013] 358 ITR 259/212 Taxman 68/25 taxmann.com 225. In this case all that the assessee gets right is to access the copyrighted material and there is no dispute about. As a matter of fact, the AO righty noted that 'royalty' has been defined as "payment of any kind received as a consideration for the use of, or right to use of, any copyright of literary, artistic or scientific work" and that the expression "literary work", under section 2(o) of the Copyright Act, includes 'literary database' but then he fell in error of reasoning inasmuch as the payment was not for use of copyright of literary database but only for access to the literary database under limited non exclusive and non transferable licence. Even during the course of hearing before us, learned Departmental Representative could not demonstrate as to how there was use of copyright. In our considered view, it was simply a case of copyrighted material and therefore the impugned payments cannot be treated as royalty payments. This view is also supported by Hon'ble Bombay High Court's judgment in the case of DIT (International Taxation) v. Dun & Bradstreet Information
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Elsevier Information Systems GmbH Services India (P.) Ltd. [2011] 338 ITR 95/[2012] 20 taxmann.com 695."
The same view was again expressed by the Tribunal in DCIT v/s Welspun Corporation Ltd., [2017] 77 taxmann.com 165. If we examine the facts of the present appeal in juxtaposition to the facts of the decisions referred to herein before, it can be seen that the facts are almost identical and akin. In the referred cases the assessees were also maintaining databases of information collated from various journals and articles and allowed access to the users to use such material as required by them. Keeping in view the ratio laid down in the decisions (supra), the payment received by the assessee has to be held to have been received for use of copyrighted article rather than for use of or right to use of copyright.
Having held so, the next issue which arises for consideration is, whether the subscription fee can be treated as fees for technical services. As discussed earlier, it is evident that the assessee has collated data from various journals and articles and put them in a structured manner in the database to make it more user friendly and beneficial to the users/customers who want to access the database. The assessee has neither employed any technical/skilled person to provide any managerial or technical service nor there is any direct interaction between the customer/user of the database and the Elsevier Information Systems GmbH employees of the assessee. The customer/user is allowed access to the online database through various search engines provided through internet connection. There is no material on record to demonstrate that while providing access to the database there is any human intervention. As held by the Hon'ble Supreme Court in CIT v/s Bharati Cellular Ltd., [2010] 193 taxman 97 (SC) and DIT v/s A.P. Moller Maersk A.S., [2017] 392 ITR 186 (SC), for providing technical / managerial service human intervention is a sin qua non. Further, Article-12(4) of IndiaGermany Tax Treaty provides that payment for the service of managerial, technical or consultancy nature including the provisions of services by technical or other personnel can be termed as fees for technical services. None of the features of fees for technical services as provided under Article 12(4) of the India- Germany Tax Treaty can be found in the subscription fee received by the assessee. Further, the Department has not brought any material on record to demonstrate that the assessee has employed any skilled personnel having knowledge of chemical industry either to assist in collating articles from journals / magazines which are publicly available or through them the assessee provides instructions to subscribers for accessing the online database. The assessee even does not alter or modify in any manner the articles collated and stored in the database. In the aforesaid view of the matter, the subscription fee received cannot be considered as a fee for technical services as well.”
In the case of Elsevier Information System GmbH (supra) held that receipt of the assessee therein do not qualify as FTS as per the provisions Section 9(1) (vii) of the Act, wherein the Tribunal Bench of Mumbai adjudicated the issue regarding treaty of ‘Indo-German Tax Treaty’ wherein the provisions of FTS are similar to Section 9(1)(7) of the Act. The only 13 ITAs. 1877 & 1876/Del/2022 RELX Inc., Gurgaon. difference to the present appeal is that the applicable treaty is Indo-US Tax Treaty. The Article 7 of India-US DTAA, the income from subscription to Assessee’s data base is in the nature of business profit, therefore, the same is not taxable in India as the assessee has no permanent establishment in India. By respectfully following the ratio laid down by the Mumbai Tribunal in the
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case of Elsevier Information System GmbH (supra), in the absence of any material available on record to prove that the assessee is providing full fledged service and solutions for legal professions, we are of the opinion that the A.O. has committed an error in making the addition. In view of the same, the payment received by the assessee is in the nature of ‘Business Profit’ which cannot be brought to tax in India in the absence of PE. Accordingly, the grounds of both the appeals of the assessee are allowed.”
Respectfully following the decision (supra), we decide the appeal of the assessee in its favour. Consequently, the impugned order of the Ld. CIT is hereby vacated.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 24th July, 2023.
sd/- sd/- (G.S. PANNU) (ASTHA CHANDRA) PRESIDENT JUDICIAL MEMBER
Dated: 24/07/2023 Veena Copy forwarded to - 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi Date of dictation Date on which the typed draft is placed before the dictating Member Date on which the typed draft is placed before the Other Member Date on which the approved draft comes to the Sr. PS/PS Date on which the fair order is placed before the Dictating Member for pronouncement Date on which the fair order comes back to the Sr. PS/PS Date on which the final order is uploaded on the website of ITAT Date on which the file goes to the Bench Clerk Date on which the file goes to the Head Clerk The date on which the file goes to the Assistant Registrar for signature on the order Date of dispatch of the Order